Pension Plans Zishun Yan

Two Main Types of Pension Plans DBP (Defined Benefit Plan) DCP (Defined Contribution Plan)

DBP (Defined Benefit Plan) Employer makes investment choices Employer guarantees the retirement benefits Employer bears investment risk

DCP (Defined Contribution Plan) Employee makes the investment choices Employer may agree to make specified contribution to the plan but does not guaranty retirement benefits Employee bears the investment risk

Under Defined Contribution Plans 401 (k) Most widely used 403 (b) Public schools, colleges, universities, charities, governments and other tax-exempt entities 457 Public schools, colleges, universities, charities, governments and other tax-exempt entities

401 (k) Most commonly used by people and institutions. There are two different types of 401 (k). One is Traditional 401 (k), the other one is ROTH 401 (k)

403 (b) & 457 Similarities: 1) Public institutions and government 2) Pre-tax contribution 3) Unlike 401 (k), they both gives employees more options to choose their preferred providers

403 (b) & 457 Differences 1)403 (b) has penalty for early withdraw prior to the age of But for 457 people can get distribution as far as they do not work for employers that provide 457 plan to them. 2)For people who have 457, as long as they still work for their employers, they cannot withdraw any retirement fund from 457 account until the age of 70.5

403 (b) & 457 Interesting facts People can do 457 along with 403 (b) or Defined Benefit Plan (DBP). For people who are doing double plans and concerned about job changing, they tend to choose 403 (b) as the primary plan. For people who young and may change jobs frequently, they may likely to choose 457 as the primary plan, as they can get distribution right at unemployment.

401 (k)!! Traditional 401 (k) = Pre-tax contribution + Taxable distribution after retirement ROTH 401 (k) = After-tax income + Tax exempted distribution after retirement Which one is better? Who knows? See spread sheet.

DO NOT WITHDRAW MONEY FROM PENSION PLANS UNTIL RETIREMENT!!